Monday, May 30
Why Greece Will Default Soon, and What Happens Next
As the haze and rhetoric surrounding the Greek debt crisis begins to lift we can now paint a pretty good picture of what's in store over the next few weeks for Europe's seemingly never-ending debt saga.
The June 29 Deadline
The FT describes the latest details and deadline in the Greek debt endgame:
Driving the IMF's credible tough stance are hard lessons learned (and apparently not forgotten) in Latin America a decade ago.
Remembering Argentina
Paul Blustein has written two very insightful and accessible books on recent sovereign defaults and IMF bailouts. His first, titled The Chastening, details the 1997-1998 Asian financial crisis. His follow-up focussed on the financial crisis which struck Argentina's shortly thereafter, and is titled And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina. Both books are available in in the Good Books and Films section on the right side of this blog.
Continue reading the full article at SeekingAlpha here.
The June 29 Deadline
The FT describes the latest details and deadline in the Greek debt endgame:
...pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June’s €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months.
Officials think Greece will be unable to return to the financial markets to raise money on its own in March – as originally planned in the current €110bn package – meaning that the IMF is now forbidden from distributing any additional cash. Without the IMF funds, eurozone governments would either be forced to fill the gap or Athens could default.
To bring the IMF back in, the new deal must be reached by a scheduled meeting of EU finance ministers on June 20.The hard deadline may in fact be June 29, when a 12 billion euro ($17bn; £10bn) payment is due to be made to Greece, of which 3.3 billion euros would come from the IMF.
Driving the IMF's credible tough stance are hard lessons learned (and apparently not forgotten) in Latin America a decade ago.
Remembering Argentina
Paul Blustein has written two very insightful and accessible books on recent sovereign defaults and IMF bailouts. His first, titled The Chastening, details the 1997-1998 Asian financial crisis. His follow-up focussed on the financial crisis which struck Argentina's shortly thereafter, and is titled And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina. Both books are available in in the Good Books and Films section on the right side of this blog.
Continue reading the full article at SeekingAlpha here.
Sunday, May 29
Saturday, May 28
Wednesday, May 25
Tuesday, May 24
Monday, May 23
Video: Dominique Strauss-Kahn (DSK) Saturday Night Live (SNL) Skit
For more great edutainment check out this video, which is from a year ago and still spot on as nothing has really changed with Europe's debt crisis in the past twelve months.
Sunday, May 22
Saturday, May 21
Econ Myth Busting: Sorry John Carney, the U.S. is Not a Default Virgin
I'm a big fan of American Public Media's Marketplace radio show, but Friday's show featured CNBC's John Carney and Fortune's Leigh Gallagher discussing the U.S. debt situation.
Both John and Leigh stated the oft-repeated myth that the U.S. has *never* defaulted.
If only that were true.
The above summary is from Carmen Reinhart's and Ken Rogoff's research in their superb book This Time is Different, which is available in the Good Books and Films section on the far right column of this blog.
As you can see from their research not only has the U.S. defaulted, but the U.S. has defaulted or 'restructured' (a partial-default) at least once every century since the founding of the republic. Details on each episode can be found in the book and at Carmen's website.
As Reinhart and Rogoff put it, the U.S. is definitely not a "default virgin".
Both John and Leigh stated the oft-repeated myth that the U.S. has *never* defaulted.
If only that were true.
 |
The above summary is from Carmen Reinhart's and Ken Rogoff's research in their superb book This Time is Different, which is available in the Good Books and Films section on the far right column of this blog.
As you can see from their research not only has the U.S. defaulted, but the U.S. has defaulted or 'restructured' (a partial-default) at least once every century since the founding of the republic. Details on each episode can be found in the book and at Carmen's website.
As Reinhart and Rogoff put it, the U.S. is definitely not a "default virgin".
Friday, May 20
Thursday, May 19
Wednesday, May 18
A Punctuation Mark in European History
By George Friedman, STRATFOR
With the Palestinians demonstrating and the International Monetary Fund in turmoil, it would seem odd to focus this week on something called the Visegrad Group. But this is not a frivolous choice. What the Visegrad Group decided to do last week will, I think, resonate for years, long after the alleged attempted rape by Dominique Strauss-Kahn is forgotten and long before the Israeli-Palestinian issue is resolved. The obscurity of the decision to most people outside the region should not be allowed to obscure its importance.
The region is Europe — more precisely, the states that had been dominated by the Soviet Union. The Visegrad Group, or V4, consists of four countries — Poland, Slovakia, the Czech Republic and Hungary — and is named after two 14th century meetings held in Visegrad Castle in present-day Hungary of leaders of the medieval kingdoms of Poland, Hungary and Bohemia. The group was reconstituted in 1991 in post-Cold War Europe as the Visegrad Three (at that time, Slovakia and the Czech Republic were one). The goal was to create a regional framework after the fall of Communism. This week the group took an interesting new turn.
On May 12, the Visegrad Group announced the formation of a “battle group” under the command of Poland. The battle group would be in place by 2016 as an independent force and would not be part of NATO command. In addition, starting in 2013, the four countries would begin military exercises together under the auspices of the NATO Response Force.
Since the fall of the Soviet Union, the primary focus of all of the Visegrad nations had been membership in the European Union and NATO. Their evaluation of their strategic position was threefold. First, they felt that the Russian threat had declined if not dissipated following the fall of the Soviet Union. Second, they felt that their economic future was with the European Union. Third, they believed that membership in NATO, with strong U.S. involvement, would protect their strategic interests. Of late, their analysis has clearly been shifting.
First, Russia has changed dramatically since the Yeltsin years. It has increased its power in the former Soviet sphere of influence substantially, and in 2008 it carried out an effective campaign against Georgia. Since then it has also extended its influence in other former Soviet states. The Visegrad members’ underlying fear of Russia, built on powerful historical recollection, has become more intense. They are both the front line to the former Soviet Union and the countries that have the least confidence that the Cold War is simply an old memory.
Second, the infatuation with Europe, while not gone, has frayed. The ongoing economic crisis, now focused again on Greece, has raised two questions: whether Europe as an entity is viable and whether the reforms proposed to stabilize Europe represent a solution for them or primarily for the Germans. It is not, by any means, that they have given up the desire to be Europeans, nor that they have completely lost faith in the European Union as an institution and an idea. Nevertheless, it would be unreasonable to expect that these countries would not be uneasy about the direction that Europe was taking. If one wants evidence, look no further than the unease with which Warsaw and Prague are deflecting questions about the eventual date of their entry into the Eurozone. Both are the strongest economies in Central Europe, and neither is enthusiastic about the euro.
Finally, there are severe questions as to whether NATO provides a genuine umbrella of security to the region and its members. The NATO strategic concept, which was drawn up in November 2010, generated substantial concern on two scores. First, there was the question of the degree of American commitment to the region, considering that the document sought to expand the alliance’s role in non-European theaters of operation. For example, the Americans pledged a total of one brigade to the defense of Poland in the event of a conflict, far below what Poland thought necessary to protect the North European Plain. Second, the general weakness of European militaries meant that, willingness aside, the ability of the Europeans to participate in defending the region was questionable. Certainly, events in Libya, where NATO had neither a singular political will nor the military participation of most of its members, had to raise doubts. It was not so much the wisdom of going to war but the inability to create a coherent strategy and deploy adequate resources that raised questions of whether NATO would be any more effective in protecting the Visegrad nations.
There is another consideration. Germany’s commitment to both NATO and the EU has been fraying. The Germans and the French split on the Libya question, with Germany finally conceding politically but unwilling to send forces. Libya might well be remembered less for the fate of Moammar Gadhafi than for the fact that this was the first significant strategic break between Germany and France in decades. German national strategy has been to remain closely aligned with France in order to create European solidarity and to avoid Franco-German tensions that had roiled Europe since 1871. This had been a centerpiece of German foreign policy, and it was suspended, at least temporarily.
The Germans obviously are struggling to shore up the European Union and questioning precisely how far they are prepared to go in doing so. There are strong political forces in Germany questioning the value of the EU to Germany, and with every new wave of financial crises requiring German money, that sentiment becomes stronger. In the meantime, German relations with Russia have become more important to Germany. Apart from German dependence on Russian energy, Germany has investment opportunities in Russia. The relationship with Russia is becoming more attractive to Germany at the same time that the relationship to NATO and the EU has become more problematic.
For all of the Visegrad countries, any sense of a growing German alienation from Europe and of a growing German-Russian economic relationship generates warning bells. Before the Belarusian elections there was hope in Poland that pro-Western elements would defeat the least unreformed regime in the former Soviet Union. This didn’t happen. Moreover, pro-Western elements have done nothing to solidify in Moldova or break the now pro-Russian government in Ukraine. Uncertainty about European institutions and NATO, coupled with uncertainty about Germany’s attention, has caused a strategic reconsideration — not to abandon NATO or the EU, of course, nor to confront the Russians, but to prepare for all eventualities.
It is in this context that the decision to form a Visegradian battle group must be viewed. Such an independent force, a concept generated by the European Union as a European defense plan, has not generated much enthusiasm or been widely implemented. The only truly robust example of an effective battle group is the Nordic Battle Group, but then that is not surprising. The Nordic countries share the same concerns as the Visegrad countries — the future course of Russian power, the cohesiveness of Europe and the commitment of the United States.
In the past, the Visegrad countries would have been loath to undertake anything that felt like a unilateral defense policy. Therefore, the decision to do this is significant in and of itself. It represents a sense of how these countries evaluate the status of NATO, the U.S. attention span, European coherence and Russian power. It is not the battle group itself that is significant but the strategic decision of these powers to form a sub-alliance, if you will, and begin taking responsibility for their own national security. It is not what they expected or wanted to do, but it is significant that they felt compelled to begin moving in this direction.
Just as significant is the willingness of Poland to lead this military formation and to take the lead in the grouping as a whole. Poland is the largest of these countries by far and in the least advantageous geographical position. The Poles are trapped between the Germans and the Russians. Historically, when Germany gets close to Russia, Poland tends to suffer. It is not at that extreme point yet, but the Poles do understand the possibilities. In July, the Poles will be assuming the EU presidency in one of the union’s six-month rotations. The Poles have made clear that one of their main priorities will be Europe’s military power. Obviously, little can happen in Europe in six months, but this clearly indicates where Poland’s focus is.
The militarization of the V4 runs counter to its original intent but is in keeping with the geopolitical trends in the region. Some will say this is over-reading on my part or an overreaction on the part of the V4, but it is neither. For the V4, the battle group is a modest response to emerging patterns in the region, which STRATFOR had outlined in its 2011 Annual Forecast. As for my reading, I regard the new patterns not as a minor diversion from the main pattern but as a definitive break in the patterns of the post-Cold War world. In my view, the post-Cold War world ended in 2008, with the financial crisis and the Russo-Georgian war. We are in a new era, as yet unnamed, and we are seeing the first breaks in the post-Cold War pattern.
I have argued in previous articles and books that there is a divergent interest between the European countries on the periphery of Russia and those farther west, particularly Germany. For the countries on the periphery, there is a perpetual sense of insecurity, generated not only by Russian power compared to their own but also by uncertainty as to whether the rest of Europe would be prepared to defend them in the event of Russian actions. The V4 and the other countries south of them are not as sanguine about Russian intentions as others farther away are. Perhaps they should be, but geopolitical realities drive consciousness and insecurity and distrust defines this region.
I had also argued that an alliance only of the four northernmost countries is insufficient. I used the concept “Intermarium,” which had first been raised after World War I by a Polish leader, Joseph Pilsudski, who understood that Germany and the Soviet Union would not be permanently weak and that Poland and the countries liberated from the Hapsburg Empire would have to be able to defend themselves and not have to rely on France or Britain.
Pilsudski proposed an alliance stretching from the Baltic Sea to the Black Sea and encompassing the countries to the west of the Carpathians — Czechoslovakia, Hungary, Romania and Bulgaria. In some formulations, this would include Yugoslavia, Finland and the Baltics. The point was that Poland had to have allies, that no one could predict German and Soviet strength and intentions, and that the French and English were too far away to help. The only help Poland could have would be an alliance of geography — countries with no choice.
It follows from this that the logical evolution here is the extension of the Visegrad coalition. At the May 12 defense ministers’ meeting, there was discussion of inviting Ukraine to join in. Twenty or even 10 years ago, that would have been a viable option. Ukraine had room to maneuver. But the very thing that makes the V4 battle group necessary — Russian power — limits what Ukraine can do. The Russians are prepared to give Ukraine substantial freedom to maneuver, but that does not include a military alliance with the Visegrad countries.
An alliance with Ukraine would provide significant strategic depth. It is unlikely to happen. That means that the alliance must stretch south, to include Romania and Bulgaria. The low-level tension between Hungary and Romania over the status of Hungarians in Romania makes that difficult, but if the Hungarians can live with the Slovaks, they can live with the Romanians. Ultimately, the interesting question is whether Turkey can be persuaded to participate in this, but that is a question far removed from Turkish thinking now. History will have to evolve quite a bit for this to take place. For now, the question is Romania and Bulgaria.
But the decision of the V4 to even propose a battle group commanded by Poles is one of those small events that I think will be regarded as a significant turning point. However we might try to trivialize it and place it in a familiar context, it doesn’t fit. It represents a new level of concern over an evolving reality — the power of Russia, the weakness of Europe and the fragmentation of NATO. This is the last thing the Visegrad countries wanted to do, but they have now done the last thing they wanted to do. That is what is significant.
Events in the Middle East and Europe’s economy are significant and of immediate importance. However, sometimes it is necessary to recognize things that are not significant yet but will be in 10 years. I believe this is one of those events. It is a punctuation mark in European history.
Visegrad: A New European Military Force is republished with permission of STRATFOR.
With the Palestinians demonstrating and the International Monetary Fund in turmoil, it would seem odd to focus this week on something called the Visegrad Group. But this is not a frivolous choice. What the Visegrad Group decided to do last week will, I think, resonate for years, long after the alleged attempted rape by Dominique Strauss-Kahn is forgotten and long before the Israeli-Palestinian issue is resolved. The obscurity of the decision to most people outside the region should not be allowed to obscure its importance.
The region is Europe — more precisely, the states that had been dominated by the Soviet Union. The Visegrad Group, or V4, consists of four countries — Poland, Slovakia, the Czech Republic and Hungary — and is named after two 14th century meetings held in Visegrad Castle in present-day Hungary of leaders of the medieval kingdoms of Poland, Hungary and Bohemia. The group was reconstituted in 1991 in post-Cold War Europe as the Visegrad Three (at that time, Slovakia and the Czech Republic were one). The goal was to create a regional framework after the fall of Communism. This week the group took an interesting new turn.
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| (click here to enlarge image) |
On May 12, the Visegrad Group announced the formation of a “battle group” under the command of Poland. The battle group would be in place by 2016 as an independent force and would not be part of NATO command. In addition, starting in 2013, the four countries would begin military exercises together under the auspices of the NATO Response Force.
Since the fall of the Soviet Union, the primary focus of all of the Visegrad nations had been membership in the European Union and NATO. Their evaluation of their strategic position was threefold. First, they felt that the Russian threat had declined if not dissipated following the fall of the Soviet Union. Second, they felt that their economic future was with the European Union. Third, they believed that membership in NATO, with strong U.S. involvement, would protect their strategic interests. Of late, their analysis has clearly been shifting.
First, Russia has changed dramatically since the Yeltsin years. It has increased its power in the former Soviet sphere of influence substantially, and in 2008 it carried out an effective campaign against Georgia. Since then it has also extended its influence in other former Soviet states. The Visegrad members’ underlying fear of Russia, built on powerful historical recollection, has become more intense. They are both the front line to the former Soviet Union and the countries that have the least confidence that the Cold War is simply an old memory.
Second, the infatuation with Europe, while not gone, has frayed. The ongoing economic crisis, now focused again on Greece, has raised two questions: whether Europe as an entity is viable and whether the reforms proposed to stabilize Europe represent a solution for them or primarily for the Germans. It is not, by any means, that they have given up the desire to be Europeans, nor that they have completely lost faith in the European Union as an institution and an idea. Nevertheless, it would be unreasonable to expect that these countries would not be uneasy about the direction that Europe was taking. If one wants evidence, look no further than the unease with which Warsaw and Prague are deflecting questions about the eventual date of their entry into the Eurozone. Both are the strongest economies in Central Europe, and neither is enthusiastic about the euro.
Finally, there are severe questions as to whether NATO provides a genuine umbrella of security to the region and its members. The NATO strategic concept, which was drawn up in November 2010, generated substantial concern on two scores. First, there was the question of the degree of American commitment to the region, considering that the document sought to expand the alliance’s role in non-European theaters of operation. For example, the Americans pledged a total of one brigade to the defense of Poland in the event of a conflict, far below what Poland thought necessary to protect the North European Plain. Second, the general weakness of European militaries meant that, willingness aside, the ability of the Europeans to participate in defending the region was questionable. Certainly, events in Libya, where NATO had neither a singular political will nor the military participation of most of its members, had to raise doubts. It was not so much the wisdom of going to war but the inability to create a coherent strategy and deploy adequate resources that raised questions of whether NATO would be any more effective in protecting the Visegrad nations.
There is another consideration. Germany’s commitment to both NATO and the EU has been fraying. The Germans and the French split on the Libya question, with Germany finally conceding politically but unwilling to send forces. Libya might well be remembered less for the fate of Moammar Gadhafi than for the fact that this was the first significant strategic break between Germany and France in decades. German national strategy has been to remain closely aligned with France in order to create European solidarity and to avoid Franco-German tensions that had roiled Europe since 1871. This had been a centerpiece of German foreign policy, and it was suspended, at least temporarily.
The Germans obviously are struggling to shore up the European Union and questioning precisely how far they are prepared to go in doing so. There are strong political forces in Germany questioning the value of the EU to Germany, and with every new wave of financial crises requiring German money, that sentiment becomes stronger. In the meantime, German relations with Russia have become more important to Germany. Apart from German dependence on Russian energy, Germany has investment opportunities in Russia. The relationship with Russia is becoming more attractive to Germany at the same time that the relationship to NATO and the EU has become more problematic.
For all of the Visegrad countries, any sense of a growing German alienation from Europe and of a growing German-Russian economic relationship generates warning bells. Before the Belarusian elections there was hope in Poland that pro-Western elements would defeat the least unreformed regime in the former Soviet Union. This didn’t happen. Moreover, pro-Western elements have done nothing to solidify in Moldova or break the now pro-Russian government in Ukraine. Uncertainty about European institutions and NATO, coupled with uncertainty about Germany’s attention, has caused a strategic reconsideration — not to abandon NATO or the EU, of course, nor to confront the Russians, but to prepare for all eventualities.
It is in this context that the decision to form a Visegradian battle group must be viewed. Such an independent force, a concept generated by the European Union as a European defense plan, has not generated much enthusiasm or been widely implemented. The only truly robust example of an effective battle group is the Nordic Battle Group, but then that is not surprising. The Nordic countries share the same concerns as the Visegrad countries — the future course of Russian power, the cohesiveness of Europe and the commitment of the United States.
In the past, the Visegrad countries would have been loath to undertake anything that felt like a unilateral defense policy. Therefore, the decision to do this is significant in and of itself. It represents a sense of how these countries evaluate the status of NATO, the U.S. attention span, European coherence and Russian power. It is not the battle group itself that is significant but the strategic decision of these powers to form a sub-alliance, if you will, and begin taking responsibility for their own national security. It is not what they expected or wanted to do, but it is significant that they felt compelled to begin moving in this direction.
Just as significant is the willingness of Poland to lead this military formation and to take the lead in the grouping as a whole. Poland is the largest of these countries by far and in the least advantageous geographical position. The Poles are trapped between the Germans and the Russians. Historically, when Germany gets close to Russia, Poland tends to suffer. It is not at that extreme point yet, but the Poles do understand the possibilities. In July, the Poles will be assuming the EU presidency in one of the union’s six-month rotations. The Poles have made clear that one of their main priorities will be Europe’s military power. Obviously, little can happen in Europe in six months, but this clearly indicates where Poland’s focus is.
The militarization of the V4 runs counter to its original intent but is in keeping with the geopolitical trends in the region. Some will say this is over-reading on my part or an overreaction on the part of the V4, but it is neither. For the V4, the battle group is a modest response to emerging patterns in the region, which STRATFOR had outlined in its 2011 Annual Forecast. As for my reading, I regard the new patterns not as a minor diversion from the main pattern but as a definitive break in the patterns of the post-Cold War world. In my view, the post-Cold War world ended in 2008, with the financial crisis and the Russo-Georgian war. We are in a new era, as yet unnamed, and we are seeing the first breaks in the post-Cold War pattern.
I have argued in previous articles and books that there is a divergent interest between the European countries on the periphery of Russia and those farther west, particularly Germany. For the countries on the periphery, there is a perpetual sense of insecurity, generated not only by Russian power compared to their own but also by uncertainty as to whether the rest of Europe would be prepared to defend them in the event of Russian actions. The V4 and the other countries south of them are not as sanguine about Russian intentions as others farther away are. Perhaps they should be, but geopolitical realities drive consciousness and insecurity and distrust defines this region.
I had also argued that an alliance only of the four northernmost countries is insufficient. I used the concept “Intermarium,” which had first been raised after World War I by a Polish leader, Joseph Pilsudski, who understood that Germany and the Soviet Union would not be permanently weak and that Poland and the countries liberated from the Hapsburg Empire would have to be able to defend themselves and not have to rely on France or Britain.
Pilsudski proposed an alliance stretching from the Baltic Sea to the Black Sea and encompassing the countries to the west of the Carpathians — Czechoslovakia, Hungary, Romania and Bulgaria. In some formulations, this would include Yugoslavia, Finland and the Baltics. The point was that Poland had to have allies, that no one could predict German and Soviet strength and intentions, and that the French and English were too far away to help. The only help Poland could have would be an alliance of geography — countries with no choice.
It follows from this that the logical evolution here is the extension of the Visegrad coalition. At the May 12 defense ministers’ meeting, there was discussion of inviting Ukraine to join in. Twenty or even 10 years ago, that would have been a viable option. Ukraine had room to maneuver. But the very thing that makes the V4 battle group necessary — Russian power — limits what Ukraine can do. The Russians are prepared to give Ukraine substantial freedom to maneuver, but that does not include a military alliance with the Visegrad countries.
An alliance with Ukraine would provide significant strategic depth. It is unlikely to happen. That means that the alliance must stretch south, to include Romania and Bulgaria. The low-level tension between Hungary and Romania over the status of Hungarians in Romania makes that difficult, but if the Hungarians can live with the Slovaks, they can live with the Romanians. Ultimately, the interesting question is whether Turkey can be persuaded to participate in this, but that is a question far removed from Turkish thinking now. History will have to evolve quite a bit for this to take place. For now, the question is Romania and Bulgaria.
But the decision of the V4 to even propose a battle group commanded by Poles is one of those small events that I think will be regarded as a significant turning point. However we might try to trivialize it and place it in a familiar context, it doesn’t fit. It represents a new level of concern over an evolving reality — the power of Russia, the weakness of Europe and the fragmentation of NATO. This is the last thing the Visegrad countries wanted to do, but they have now done the last thing they wanted to do. That is what is significant.
Events in the Middle East and Europe’s economy are significant and of immediate importance. However, sometimes it is necessary to recognize things that are not significant yet but will be in 10 years. I believe this is one of those events. It is a punctuation mark in European history.
Visegrad: A New European Military Force is republished with permission of STRATFOR.
Tuesday, May 17
Ken Rogoff to Investors: "The Fed Doesn't Have Your Back"
Interview with Ben Bernanke's close friend below:
Q: The U.S. hit the $14.3 trillion debt ceiling today, and now the Treasury is moving cash around to stave off default till August. What's that mean for markets?
A: I don't think it means anything immediately, but it doesn't seem like any way to run the government. I think they should raise the debt ceiling unconditionally, despite the fact that some reforms are desperately needed. When you're the world's biggest debtor there are repercussions when you take it to the brink and scare people (with the idea) that you just might consider a default.
Q: You're not in favor of the artificial cap, or debt ceiling, because it threatens creditors. But debt is still your biggest worry about the economy, yes?
A: The greatest concern at the moment is the huge debt overhang. All U.S. government debt, including state and local, is higher than at the end of World War II. But equally significantly, private debt (like mortgages and credit cards) is almost at its all-time high. If you combine the two, there's never been anything like it.
Q: What's the risk in the U.S. having so much debt? Other countries, like Japan, have larger debt burdens.
A: It doesn't automatically cause a crisis, but it certainly weighs on the recovery. Very roughly speaking, when a country has public debt over 90 percent of income, growth is about 1 percent lower for a very long time.
Q: A government can't increase spending as easily if it has too much debt, which you say makes a country vulnerable. How so?
A: That's the fundamental problem. You see it when a country loses tax revenues and needs to borrow money. They have wars and natural catastrophes and need to spend to pay for things, reconstruction, bridges. You don't want to be forced in the middle of a recession to raise tax rates (to pay for those things). That's a disaster.
Q: Politicians use your work to argue for deep spending cuts now to trim our debt. Do you agree?
A: If we tighten too fast, the economy will implode on itself. We didn't get here in two years, and we shouldn't try to get out of it in two years. But at the same time the idea that we can worry about the future later, that's false. It's not just about cutting spending. The tax take probably needs to go up. We need to clean up the tax system.
Q: Where would you start?
A: I'm one of many economists who favor scrapping the current system entirely in favor of some form of a flat tax, with a very high deductible for low-income earners. And you know what? The very wealthy would pay more. They pay less under the current system because there are these smoke and mirrors they can hide behind, all these deductions and all these ways of avoiding taxes.
Q: Your friend and former classmate Ben Bernanke has taken flak for the most recent quantitative easing program, known as QE 2. What do you make of the effort to keep prices from falling through pushing $600 billion into the economy?
A: I thought QE 2 was absolutely right when they did it. But the way quantitative easing works best is you announce a goal and then say you will do whatever it takes (to get there). If you don't have a blank check, it doesn't do much. Because of all the pushback from the Chinese, the Germans and Sarah Palin, they couldn't keep going. The Fed needed a free hand, and it doesn't have one. A second problem was the Fed was not careful enough to tell the market clearly, "This is not going to solve all your problems." The biggest mistake they made was the suggestion that part of the way quantitative easing operates is through the stock market. There are all these traders on Wall Street who said, "This means the Fed's got our back. The Fed is just determined to drive up the market."
Q: What's wrong with traders thinking that?
A: Well, the Fed doesn't have their back. The Fed cares about stable inflation. So the worry now is when these traders see that QE 2 is coming to an end, will they get really depressed and all their trades will unwind? That's the concern.
Q. At Bernanke's first press conference in April, he joked that playing chess with you was a "big mistake." Most people don't know you're an International Grandmaster. Did Bernanke ever ask for a rematch?
A: No. I went cold turkey after leaving graduate school. I teach my children how to play (chess) but that's it. I'm completely addicted and need to guard myself from playing. I still think about chess all the time.
Q: Has your expertise in chess helped inform your work?
A: Chess teaches you to think about what the other person is thinking. Obviously, there are other ways besides chess to come to that. Chess is just a disciplined approach. At the IMF, we had crises in Argentina, Brazil, Turkey and Lebanon. And it helped to put myself in their position: "What are they thinking."
 |
| The young chess grandmaster |
A: I don't think it means anything immediately, but it doesn't seem like any way to run the government. I think they should raise the debt ceiling unconditionally, despite the fact that some reforms are desperately needed. When you're the world's biggest debtor there are repercussions when you take it to the brink and scare people (with the idea) that you just might consider a default.
Q: You're not in favor of the artificial cap, or debt ceiling, because it threatens creditors. But debt is still your biggest worry about the economy, yes?
A: The greatest concern at the moment is the huge debt overhang. All U.S. government debt, including state and local, is higher than at the end of World War II. But equally significantly, private debt (like mortgages and credit cards) is almost at its all-time high. If you combine the two, there's never been anything like it.
Q: What's the risk in the U.S. having so much debt? Other countries, like Japan, have larger debt burdens.
A: It doesn't automatically cause a crisis, but it certainly weighs on the recovery. Very roughly speaking, when a country has public debt over 90 percent of income, growth is about 1 percent lower for a very long time.
Q: A government can't increase spending as easily if it has too much debt, which you say makes a country vulnerable. How so?
A: That's the fundamental problem. You see it when a country loses tax revenues and needs to borrow money. They have wars and natural catastrophes and need to spend to pay for things, reconstruction, bridges. You don't want to be forced in the middle of a recession to raise tax rates (to pay for those things). That's a disaster.
Q: Politicians use your work to argue for deep spending cuts now to trim our debt. Do you agree?
A: If we tighten too fast, the economy will implode on itself. We didn't get here in two years, and we shouldn't try to get out of it in two years. But at the same time the idea that we can worry about the future later, that's false. It's not just about cutting spending. The tax take probably needs to go up. We need to clean up the tax system.
Q: Where would you start?
A: I'm one of many economists who favor scrapping the current system entirely in favor of some form of a flat tax, with a very high deductible for low-income earners. And you know what? The very wealthy would pay more. They pay less under the current system because there are these smoke and mirrors they can hide behind, all these deductions and all these ways of avoiding taxes.
Q: Your friend and former classmate Ben Bernanke has taken flak for the most recent quantitative easing program, known as QE 2. What do you make of the effort to keep prices from falling through pushing $600 billion into the economy?
A: I thought QE 2 was absolutely right when they did it. But the way quantitative easing works best is you announce a goal and then say you will do whatever it takes (to get there). If you don't have a blank check, it doesn't do much. Because of all the pushback from the Chinese, the Germans and Sarah Palin, they couldn't keep going. The Fed needed a free hand, and it doesn't have one. A second problem was the Fed was not careful enough to tell the market clearly, "This is not going to solve all your problems." The biggest mistake they made was the suggestion that part of the way quantitative easing operates is through the stock market. There are all these traders on Wall Street who said, "This means the Fed's got our back. The Fed is just determined to drive up the market."
Q: What's wrong with traders thinking that?
A: Well, the Fed doesn't have their back. The Fed cares about stable inflation. So the worry now is when these traders see that QE 2 is coming to an end, will they get really depressed and all their trades will unwind? That's the concern.
Q. At Bernanke's first press conference in April, he joked that playing chess with you was a "big mistake." Most people don't know you're an International Grandmaster. Did Bernanke ever ask for a rematch?
A: No. I went cold turkey after leaving graduate school. I teach my children how to play (chess) but that's it. I'm completely addicted and need to guard myself from playing. I still think about chess all the time.
Q: Has your expertise in chess helped inform your work?
A: Chess teaches you to think about what the other person is thinking. Obviously, there are other ways besides chess to come to that. Chess is just a disciplined approach. At the IMF, we had crises in Argentina, Brazil, Turkey and Lebanon. And it helped to put myself in their position: "What are they thinking."
Source: AP
How to Play the 'Reprofiling' of Greek Debt
Today comes the latest in a long list of euphemisms for a Greek debt default, this one courtesy of Eurogroup head and Luxembourg PM Jean-Claude Juncker:
While it's unclear how many of Europe's leaders are in agreement with Juncker, at least some of the Eurozone's grownups have begun to publicly acknowledge what the market has been communicating for awhile, which is that maintaining the current Greek debt program is hopeless. John Mauldin spells out the inescapable arithmetic:
The question now becomes how much appetite is there in Greece for any additional cuts and the selling off of state assets to pay back the foreign banks (primarily French and German) which lent Greece money? And are the Greeks really willing to put up 'collateral' (e.g, Mykonos?) in exchange for any additional financial assistance from Germany?
Continue reading the full article at SeekingAlpha here.
“If all these conditions are fulfilled, we can discuss the question of reprofiling,” Juncker told reporters late yesterday after chairing a meeting of euro-area finance chiefs in Brussels. “It’s not reprofiling or nothing. It’s measures, measures and measures, and then maybe reprofiling.”
Source: Bloomberg
While it's unclear how many of Europe's leaders are in agreement with Juncker, at least some of the Eurozone's grownups have begun to publicly acknowledge what the market has been communicating for awhile, which is that maintaining the current Greek debt program is hopeless. John Mauldin spells out the inescapable arithmetic:
(Greek) GDP at -4.5% in 2010 and still likely to be -3.0% in 2011 (Source: IMF). If your economy slows down by 10%, then your debt-to-GDP ratio rises by 11% without any new debt. And Greece is being asked to further reduce its deficit by what is in effect 15% of GDP, while taking on no more debt. Within two years Greece will have a debt-to-GDP ratio of 160%.
No country save Britain...has ever recovered from a debt-to-GDP ratio of over 150% without a default. None.
And the reason is simple arithmetic. Even a nominal interest rate of 6% means that it takes 10% of your national income just to pay the interest. Not 10% of tax revenues, mind you; 10% of your total domestic production. That is a huge burden on any country. It sucks up half your tax revenues (or more), leaving not enough to pay for ordinary government services like police, defense, education, pensions, health care, etc.
Greece runs a massive trade deficit with the rest of Europe, which just makes the problems worse. Unemployment in Greece is now 15% and rising.The details of Greece's default (aka 'reprofiling') appear to involve some type of maturity extension in exchange for an acceleration of Greek government cuts and 50 billion euros of privatization, which translates into selling about a fifth of the property that the Greek state owns.
The question now becomes how much appetite is there in Greece for any additional cuts and the selling off of state assets to pay back the foreign banks (primarily French and German) which lent Greece money? And are the Greeks really willing to put up 'collateral' (e.g, Mykonos?) in exchange for any additional financial assistance from Germany?
Continue reading the full article at SeekingAlpha here.
Monday, May 16
Video: China's Empty Cities
Pretty rosy view from Bloomberg's Adam Johnson in the below video. For an alternative view, see these videos from Hugh Hendry and Jim Chanos.
Time for the U.S. to Sell Fort Knox Gold?
Some members of Congress and economists are saying it's time to cash-in on the appreciation of the U.S.'s vast gold holdings, which were recently valued at $370 billion.
From the Washington Post:
From the Washington Post:
Although the country does not use the gold for anything, Treasury officials believe that selling it could create the impression of desperation, and thereby rattle the markets. Inert though it may be, the mountain of hidden gold may serve an indefinable psychological function.
Selling it during a budget crunch would seem a sure bet to incite derision. The satirical newspaper The Onion recently ran a story in which President Obama vowed to balance the budget through spending cuts, tax increases and a daring midnight heist of Fort Knox. (“I’ve got the blueprints and I think I found a way out through a drainage pipe.”)Of course, Gordon Brown's U.K. government had a similar idea about selling England's gold, and we've seen how well that worked out.
Sunday, May 15
Video: Flashback to Recent Dominique Strauss-Kahn Interview on Charlie Rose
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| The IMF's Strauss-Kahn |
Rose, who has a cozy relationship in general with financial elites, seems quite fond of Strauss-Kahn, especially when the topic of running against Sarkozy in France's presidential election comes up.
One can only wonder how Charlie Rose is reacting to yesterday's shocking allegations against Strauss-Kahn, which now apparently include sodomy in his $3,000-a-night taxpayer financed hotel suite.
It's unclear what implications this may have for the ongoing European Sovereign Debt crisis or political situation in general in Europe. It certainly comes at a sensitive time when the IMF may be called upon to lend support to a 'restructuring' of Greek debt, or help manage Greece's departure from the Eurozone.
Update: Here and here are the first post-scandal Charlie Rose discussions of the arrest.
Update 2: Here is DSK's mugshot.
Saturday, May 14
Outrage of the Week: FCC Commissioner Meredith Attwell Baker Cashes-In
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| Shameful |
From the Washington Post:
Baker stood out among the FCC’s five commissioners for criticizing the merger review process for taking too long. She said the agency attached too many conditions to the deal. Among them, she opposed holding Comcast accountable to Internet access rules and the sharing of content with new online distributors such as Netflix and YouTube. She said those Internet television platforms were too new and that the market for online video was competitive and still forming.
The deal was approved in January by the FCC and Justice Department, forming a media behemoth that controls a bevy of television and movie assets along with the largest number of U.S. home Internet and cable subscriptions.Also of note, Meredith Attwell Baker is a Republican who was appointed to the F.C.C. by President Obama two years ago. On the endemic problem of regulatory capture, here's The Future of Capitalism:
In a better world, this would be a hot political issue for a politician to seize on. But because it's such a bipartisan problem — both Republicans and Democrats cash out through the revolving door — it doesn't get much attention. It's a part of why government gets bigger, though, because for the politicians and regulators the incentives are there to make more complex rules and laws that they can then earn money helping companies to either comply with or get around.Meredith Attwell Baker is just the latest example of the pervasive 'go into government to cash-in' culture which has poisoned public service in the U.S. Baker's shameful move is nothing new, but she does earn extra outrage kudos for brazenly waiting a scant four months before making such a blatant ethical affront.
Some may wonder whether it's right to cast shame on Attwell Baker? I'm not a legal expert, but I suspect she's not violating any laws or rules. Instead one could argue that she is simply behaving in accordance with the system's incentive structure.
The big problem with taking this view is that regulatory capture is a very difficult problem to address, but one that creates huge costs. Most of the people who are best served to work in the regulatory arena naturally come, and can most easily find later employment in, the industries they regulate. Until a systemic solution is devised accountability has to be maintained at the individual level, and that means shaming the shameful.
As the regulatory revolving door leading in-and-out of industry keeps going around, and around, and around, and as fiscal deficits keep piling higher, can there be any doubt that we're simply biding our time until the next big crisis?
'Adult Supervision' at Facebook?
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| But who is supervising Facebook's 'adults'? |
News of Facebook's secret smear campaign leaks the day after BusinessWeek publishes a rosy cover story on Sheryl Sandberg, which prominently quotes the Facebook COO as providing "adult supervision" at the social network.
However, Sandberg no doubt authorised and perhaps even concocted Facebook's idiotic PR caper.
In the competition over who people should trust with their very personal data, score a checkmark in Google's column and yet another minus against Zuckerberg and Co.
Tuesday, May 10
What is Financial Repression and How Investors Can Protect Themselves
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| Carmen Reinhart |
Financial repression, a subject last widely studied in development economics circles in the 1970s-80s, appears to be making a comeback. Bill Gross dedicated his May investment letter to financial repression, and an article by the FT's Gillian Tett describes how both policymakers and investors are having to refamiliarze themselves with its tenets.
Just what exactly is the ominous sounding 'financial repression'? Below is an abridged definition from Reinhart & Rogoff's This Time is Different:
Carmen Reinhart and M. Belen Sbrancia recently published a paper which analyses the extent of financial repression among advanced economies in the post-World War II period. Here's Reinhart's and Sbrancia's updated definition of financial repression, which now includes pension funds along with banks in their list of domestic captives:
Continue reading the full article at SeekingAlpha here.
Just what exactly is the ominous sounding 'financial repression'? Below is an abridged definition from Reinhart & Rogoff's This Time is Different:
Banks are vehicles that allow governments to squeeze more indirect tax revenue from citizens by monopolizing the entire savings and payment system. Governments force local residents to save in banks by giving them few, if any, other options.
They then stuff debt into the banks via reserve requirements and other devices. This allows the government to finance a part of its debt at a very low interest rate; financial repression thus constitutes a form oftaxation. Governments frequently can and do make the financial repression tax even larger by maintaining interest rate caps while creating inflation.The 'Era of Financial Repression'
Carmen Reinhart and M. Belen Sbrancia recently published a paper which analyses the extent of financial repression among advanced economies in the post-World War II period. Here's Reinhart's and Sbrancia's updated definition of financial repression, which now includes pension funds along with banks in their list of domestic captives:
A subtle type of debt restructuring takes the form of “financial repression.” Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.They studied the post-WWII period:
In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt.And their key finding which has PIMCO's Bond King in a tizzy:
Continue reading the full article at SeekingAlpha here.
Graphic: Why Healthcare in America is so Expensive
For a quick chart-view on just how much more Americans pay for healthcare click here.
Via: Medical Billing And Coding
Via: Medical Billing And Coding
Sunday, May 8
Investment Implications of Bin Laden's Death
Osama bin Laden was living not just within the borders of Pakistan, butwithin a mile of arguably the heart of the country's military establishment. Conspiracy theories abound, but it seems clear thatPakistan knew a lot more than it was letting on to its U.S. and NATO 'allies' operating in the region.
From 2002 to 2010, the U.S. gave $20 billion in aid to Pakistan ($13.3 billion in military and $6 billion for economic development). Over $3 billion has been requested for 2011.
At a time when Congress is sharpening its fiscal pencil, it's no surprise to see that Senators are pushing to cut Pakistan's aid. Expect calls for U.S. forces to pull-out of Afghanistan to only grow louder, which in turn will have a destabilizing effect on Pakistan and the wider region.
From 2002 to 2010, the U.S. gave $20 billion in aid to Pakistan ($13.3 billion in military and $6 billion for economic development). Over $3 billion has been requested for 2011.
At a time when Congress is sharpening its fiscal pencil, it's no surprise to see that Senators are pushing to cut Pakistan's aid. Expect calls for U.S. forces to pull-out of Afghanistan to only grow louder, which in turn will have a destabilizing effect on Pakistan and the wider region.
Investment Implications
Pakistan is classified as a 'frontier economy', and the range of pure play investment options that foreigners can easily make are limited. At present there are no U.S.-exchange traded Pakistan ETFs. However, the Aberdeen Emerging Markets Telecommunications and Infrastructure Fund, Inc. (ETF), and Guggenheim Frontier Markets ETF (FRN) both have Pakistan allocations. And not surprisingly, both have traded down since Monday's news.
Pakistan is classified as a 'frontier economy', and the range of pure play investment options that foreigners can easily make are limited. At present there are no U.S.-exchange traded Pakistan ETFs. However, the Aberdeen Emerging Markets Telecommunications and Infrastructure Fund, Inc. (ETF), and Guggenheim Frontier Markets ETF (FRN) both have Pakistan allocations. And not surprisingly, both have traded down since Monday's news.
Continue reading the full article at SeekingAlpha here.
Podcast: Joseph Nye on the Future of Power
Link to audio here.
Joseph Nye is a long-time analyst of power and a hands-on practitioner in government. His concept of "soft power" has been adopted by leaders from Britain to China and "smart power" has been adopted as the bumper-sticker for the Obama Administration's foreign policy. In this lecture, drawn from his new book The Future of Power, Nye outlines the major shifts of this century: new transnational challenges such as the financial crisis, global epidemics, and climate change facing an increasingly interconnected world; a changing global political and economic landscape, including the rise of China and India; and the increasing influence of non-state actors. Nye explores what resources now confer power, and argues that, in the information age, it might be the state (or non-state) with the best story. Joseph S. Nye, Jr. is University Distinguished Service Professor and former Dean of Harvard's Kennedy School of Government. He has served as Assistant Secretary of Defense for International Security Affairs, Chair of the National Intelligence Council, and a Deputy Under Secretary of State. The author of many books, he is a fellow of the American Academy of Arts and Sciences, the British Academy, and the American Academy of Diplomacy.
Joseph Nye is a long-time analyst of power and a hands-on practitioner in government. His concept of "soft power" has been adopted by leaders from Britain to China and "smart power" has been adopted as the bumper-sticker for the Obama Administration's foreign policy. In this lecture, drawn from his new book The Future of Power, Nye outlines the major shifts of this century: new transnational challenges such as the financial crisis, global epidemics, and climate change facing an increasingly interconnected world; a changing global political and economic landscape, including the rise of China and India; and the increasing influence of non-state actors. Nye explores what resources now confer power, and argues that, in the information age, it might be the state (or non-state) with the best story. Joseph S. Nye, Jr. is University Distinguished Service Professor and former Dean of Harvard's Kennedy School of Government. He has served as Assistant Secretary of Defense for International Security Affairs, Chair of the National Intelligence Council, and a Deputy Under Secretary of State. The author of many books, he is a fellow of the American Academy of Arts and Sciences, the British Academy, and the American Academy of Diplomacy.
Podcast: Brian Christian Discusses AI and the Turing Test
Author Brian Christian talks on the subject of his debut book The Most Human Human, a re-evaluation of what it means to be human in the light of breathtaking advances in artificial intelligence.
Brian Christian is an Author and Poet. He holds a dual degree in computer science and philosophy and an MFA in poetry.
Brian Christian is an Author and Poet. He holds a dual degree in computer science and philosophy and an MFA in poetry.
Video: U.S. Government Using Your Tax Dollars to Poison Food
At 1.3 million views and counting, below is the video highlighted in the recent NY Times article on how sugar is toxic.
This is a familiar story for anyone who has read the excellent Omnivore's Dilemma or seen the movie Food, Inc. (both can be found in the 'Good Books and Films' box on the right side of this blog). What may be less familiar is the fact that the U.S. federal government is directly supporting the poisoning of the American public through fructose (corn syrup) subsidies to Iowa farmers.
Please allow me to repeat that: our government is helping to poison us with our own tax money.
While some members of Congress are working to put an end to this deplorable policy, Big Food, the farm lobby and the U.S. Department of Agriculture (USDA) have thus far successfully fought off cuts to corn subsidies.
A perhaps more fundamental way to get a handle on this problem is by replacing the income tax with a consumption tax (which I've written about here).
As an aside, has anyone out there heard Warren Buffet, Coca-Cola's largest investor, address what Dr. Lustig calls the 'Coca-Cola Conspiracy'? It would seem that Warren is turning a blind eye to the fact that he is financing one of the nation's (and now the world's) fastest growing and most serious health epidemics.
This is a familiar story for anyone who has read the excellent Omnivore's Dilemma or seen the movie Food, Inc. (both can be found in the 'Good Books and Films' box on the right side of this blog). What may be less familiar is the fact that the U.S. federal government is directly supporting the poisoning of the American public through fructose (corn syrup) subsidies to Iowa farmers.
Please allow me to repeat that: our government is helping to poison us with our own tax money.
While some members of Congress are working to put an end to this deplorable policy, Big Food, the farm lobby and the U.S. Department of Agriculture (USDA) have thus far successfully fought off cuts to corn subsidies.
A perhaps more fundamental way to get a handle on this problem is by replacing the income tax with a consumption tax (which I've written about here).
As an aside, has anyone out there heard Warren Buffet, Coca-Cola's largest investor, address what Dr. Lustig calls the 'Coca-Cola Conspiracy'? It would seem that Warren is turning a blind eye to the fact that he is financing one of the nation's (and now the world's) fastest growing and most serious health epidemics.
Saturday, May 7
Friday, May 6
Photo: War Dog from Operation Neptune Spear (Bin Laden Raid)
Update: the Bin Laden raid dog was a Belgian Malinois named Cairo. More recently released details on the dog and raid, including an interview with President Obama, here.
We don't yet know the name, or even the breed (most likely a German shepherd or a Belgian Malinois), of the amazing dog which accompanied the Seal Team Six members on the Bin Laden raid.
But here are some amazing photos and more info, from Foreign Policy, about the role man's best friend plays in the U.S. military:
Daredevil dogs: The question of how the dog got into bin Laden's compound is no puzzle -- the same way the special ops team did, by being lowered from an MH-60s helicopter. In fact, U.S. Air Force dogs have been airborne for decades, though the earliest flying dogs accompanied Soviet forces in the 1930s.
Dogs usually jump in tandem with their trainers, but when properly outfitted with flotation vests they can make short jumps into water on their own. A U.S. Navy SEAL, Mike Forsythe, and his dog, Cara -- pictured above -- recently broke the world record for "highest man/dog parachute deployment" by jumping from 30,100 feet.
Above, a U.S. soldier with the 10th Special Forces Group and his dog leap off the ramp of a CH-47 Chinook helicopter during water training over the Gulf of Mexico as part of exercise Emerald Warrior on March 1.
It's not the gear that makes the dog: Military working dogs (MWDs in Army parlance) may not enjoy all the privileges of being full-fledged soldiers, but the U.S. military no longer considers them mere equipment. (The war dogs deployed to Vietnam during that conflict were classified as "surplus equipment" and left behind.) Today, MWDs are outfitted with equipment of their own -- a range of specialized gear that includes Doggles (protective eye wear), body armor, life vests, gas masks, long-range GPS-equipped vests, and high-tech canine "flak jackets."
The NY Times also has a great story on 'the nation’s most courageous dog'.
But here are some amazing photos and more info, from Foreign Policy, about the role man's best friend plays in the U.S. military:
 |
| Yep, that's a dog strapped to the parachuter |
Daredevil dogs: The question of how the dog got into bin Laden's compound is no puzzle -- the same way the special ops team did, by being lowered from an MH-60s helicopter. In fact, U.S. Air Force dogs have been airborne for decades, though the earliest flying dogs accompanied Soviet forces in the 1930s.
Dogs usually jump in tandem with their trainers, but when properly outfitted with flotation vests they can make short jumps into water on their own. A U.S. Navy SEAL, Mike Forsythe, and his dog, Cara -- pictured above -- recently broke the world record for "highest man/dog parachute deployment" by jumping from 30,100 feet.
Above, a U.S. soldier with the 10th Special Forces Group and his dog leap off the ramp of a CH-47 Chinook helicopter during water training over the Gulf of Mexico as part of exercise Emerald Warrior on March 1.
It's not the gear that makes the dog: Military working dogs (MWDs in Army parlance) may not enjoy all the privileges of being full-fledged soldiers, but the U.S. military no longer considers them mere equipment. (The war dogs deployed to Vietnam during that conflict were classified as "surplus equipment" and left behind.) Today, MWDs are outfitted with equipment of their own -- a range of specialized gear that includes Doggles (protective eye wear), body armor, life vests, gas masks, long-range GPS-equipped vests, and high-tech canine "flak jackets."
The NY Times also has a great story on 'the nation’s most courageous dog'.
Breaking: Greece May Drop Euro & Reintroduce Drachma
From Germany's reliable Der Spiegel comes the predicted but potentially destabilizing late-Friday news bomb:
Continue reading the full article at SeekingAlpha here, including thoughts on which currencies stand to benefit most from this development.
Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.
Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.
According to German Finance Ministry estimates, the currency (Drachma) could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.
The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads.
In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion in aid to Athens -- half of which has already been paid out.A slow motion bank run in Greece, Ireland, etc. has been taking place since this time last year. Any credible whiff of news that a Eurozone member might drop the euro currency could trigger a panic, rapidly accelerating the move out of euros, not just in Greece but other European periphery nations, into safer currencies.
Continue reading the full article at SeekingAlpha here, including thoughts on which currencies stand to benefit most from this development.
Wednesday, May 4
Photos: Three Dead Men at Bin Laden House (WARNING: Graphic, All 4 Post-Mortem Photos Here)
Reuters has taken down the article and photos, but below are all the pictures they purchased.
First, a new photo of the highly classified stealth Blackhawk -- and its baffled rotor -- which was scuttled. The tail rotor also had extra blades, which would have made it much quieter than the standard design. Similar modifications to the main rotor would have further silenced the approach.
Also, a "silver loaded" paint job would have also made it difficult for infra-red sensors to detect the helicopter. This would have been particularly useful if Bin Laden had been armed with heat-seeking anti-aircraft missiles.
Next, the photos of the three dead bodies in Bin Laden's house:
WARNING: graphic
Niall Ferguson: Dump Commodities Now
Looks like the good Harvard professor has made a shift in his personal portfolio.
Link to Niall Ferguson's incredibly well-timed (published April 24) Newsweek article here, which focuses on the dramatic story behind the copper boom and its 181% run-up since February 2009 (compared to gold's 75% increase over the same period).
From the article:
Link to Niall Ferguson's incredibly well-timed (published April 24) Newsweek article here, which focuses on the dramatic story behind the copper boom and its 181% run-up since February 2009 (compared to gold's 75% increase over the same period).
From the article:
So just why has copper been trumping gold as an investment? The answer is partly that the extraordinarily loose monetary policies adopted by Western governments to combat the financial crisis have driven up the prices of nearly all commodities.
But the key to the copper story is soaring Asian demand. Asians want modern houses with Western-style wiring and plumbing. They want cars. They want electronic gadgetry. So they want copper. In 2005 China accounted for 22 percent of global copper consumption. In 2009 the figure was 39 percent. Try as they may, the copper miners can’t keep pace. And the supply of copper in the world isn’t limitless. Indeed, if the rest of the world were to consume at just half the American per capita rate (1,389 pounds in an average lifetime), we’d exhaust all known copper reserves within just 38 years.
Asians were shocked by the price spike of 2004–08, which saw copper prices quadruple; hence their recent rush to invest in copper mines. The big question now is whether this new scramble for Africa is worsening the disease it was supposed to cure. Rampant Asian demand has once again driven up prices. Higher commodity prices are feeding into higher consumer prices. Inflation in China hit 5.4 percent last month. That makes the authorities nervous. The last thing they want is the kind of popular unrest that was sparked by higher prices in North Africa.
All over the world, central banks are applying the brakes. The European central bank has already raised rates. The Fed seems intent on ending quantitative easing in June. The People’s Bank of China, meanwhile, has not only raised rates but also increased reserve requirements for banks. Remember, this comes as fiscal policy is also being tightened in the developed world—even, belatedly, in the United States. Remember, too, that higher commodity prices act as a tax on consumers in importing countries. Higher prices plus lower growth equals stagflation.
So far these changes have had little impact. But brace yourself. To my eyes, global monetary and fiscal tightening is a clear sell signal for commodities. That could take the shine off copper—and send a blast of cold air down the ventilation shafts of Zambia’s mines.
Updated: Bin Laden Raid Video
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| Live: the Obama Admin. watches the raid |
The raw video stream was fed real-time to the the Obama National Security team (pictured right in the White House situation room) during the bin Laden compound raid.
With confirmation yesterday from CIA Director Leon Panetta that an official death photo of bin Laden will be released, the next question becomes whether WikiLeaks or some other outfit will be able to obtain the actual footage of the bin Laden compound raid?
In the meantime below is an ABC dramatization, and more details on the raid and the extraordinary Seal Team Six which conducted the raid here.
Bin Laden's Gold Connection
Nick Robertson of CNN observed on Twitter that neighbours say the "Osama entourage" passed themselves off as gold merchants.But as discussed on this blog previously, when it comes to smuggling neither cash nor gold can match the advantages of diamonds.
Updated: Photo of Amal Ahmed Abdul Fatah, bin Laden's Young Wife Wounded in Raid
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| Amal Ahmed Abdul Fatah, Bin Laden's wife |
She is 29-years old and Yemeni, and was a gift by a Yemeni family to bin Laden when she was only a teenager. She is bin Laden's fifth wife.
During the raid she charged a member of Seal Team Six, unarmed, and was then shot in the leg. While it's unclear whether she took a bullet from the same Navy Seal who killed bin Laden, it would seem probable.
From ABC News:
Amal and bin Laden and their three young children, a daughter and two sons, lived on the second and third floor of the compound's main house. Bin Laden apparently felt safe enough in the compound, which was surrounded by high barbed-wire topped walls, to keep his family with him.The above photo was taken from her below Yemeni passport.
Video: Afghanistan's Next President?
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| Amrullah Saleh, former Afghani Spy Chief |
An interesting video interview from PBS's Frontline of Amrullah Saleh, the former head of espionage for the Karzai-Afghanistan government.
Some of the points made by Saleh, who served with the deceased Northern Alliance leader Ahmed Shah Massoud killed by Al Qaeda right before 9/11, include:
- He believes the U.S. Obama administration does not currently possess a grand strategy or vision for how to proceed in Afghanistan/Pakistan, and the wider region.
- He broke with President Karzai and resigned his spy chief position after Karzai pivoted towards trying to strike a "deal" with the Taliban. In general believes no lasting peace can ever be achieved through deals with the Taliban ; the only lasting peace will come by integrating the Taliban into a peaceful Afghanistan democratic process.
- On the question of how long will the U.S. need to stay in the region, "How long did it take to defeat communism?" (answer: 50 years).
- Believes the U.S. needs to step up raids into Pakistan and should effectively deal with the Pakistani's who are proving Al Qaeda and Taliban, namely Pakistan's ISI espionage arm.
- On how the Taliban and Al Qaeda are earning income, "they collect taxes, and they collect part of the (wheat) harvest", in addition to heroin (the Taliban has "diversified")
- He won't confirm or deny whether he will run for office against Karzai, but he has been making the rounds in Washington, and this interview would seem to serve.
- He appears to live out in the open in the Panjshir valley north of Kabul. And yes, he has bodyguards.
Other interview highlights not covered in the video after the break.
Tuesday, May 3
Updated: New Bin Laden Death Photo Also Fake; No Photo Will Be Released
Today President Obama announced that a photo will not be released.
The below photo is the second prominent fake post-mortem shot that's been flying around the internet.
WARNING: graphic
The below photo is the second prominent fake post-mortem shot that's been flying around the internet.
WARNING: graphic
Analysis: Bin Laden's Hideout Strategy and Pakistan's Lack of Credibility
Osama bin Laden was living and killed about 100 kilometers outside Pakistan's capital of Islamabad in a relatively posh part of Abbottabad, Pakistan called Bilal Town.
The compound itself was located a short distance from the Pakistani military academy (the "West Point or Sandhurst of Pakistan" as it's being characterized). Detailed maps, satellite imagery and the CIA's diagram of the compound can be viewed here.
The Lair
His five-to-six year old property, believed to have been purpose built to hide the ultimate 'High Value Target' (HVT), was three stories tall and approximately eight times larger than any other nearby dwelling. Other key details:
Yet bin Laden's "mansion", as it has been characterized, did not have a phone line or internet. The couriers, Afghans brothers named Arshad and Tariq who were also gunned down by ST6, did not report any income and had no visible source of wealth. They also burned all their own trash. Neighbors also reported that the women who were living inside the house spoke in Arabic and not the local dialect.
Bin Laden's Hideout Strategy
Bin Laden's choice to hide near Pakistani military installations and in a residential community of retired Pakistani officers strikes me as both intriguing and suspicious. Less wise, perhaps, were some of the activities noted above, like burning the trash and not having a phone or internet line.
In short, Bin Laden stopped just short of hiding in veritable plain view. Did his failure to go all the way here do him in? One thing we do know is that the U.S. was only able to locate bin Laden by trailing his courier back to the compound in August 2010, and the whole reason bin Laden had to employ the services of a courier was due to his aversion to phones and the internet.
This location at least gave bin Laden some chance as the first assassination option considered by President Obama, employing B-2 Stealth Bombers, was abandoned due in part to the likelihood of collateral damage.
Was bin Laden's thinking on where to locate influenced by his correct calculation that the U.S. was unlikely to drop a bomb or conduct a Predator drone strike on this particular location? In turn, was bin Laden expecting a tip from Pakistani intelligence should any planned U.S. Special Forces assault to be attempted?
Who Does Pakistan Think They're Fooling?
Bin Laden apparently lived in this compound for the last 5-6 years. This raises very important questions about how much Pakistan, or elements of Pakistan's military and intelligence service, knew about the whereabouts of bin Laden. The U.S. has sent billions of dollars to Pakistan over the past several years to help find and kill people like bin Laden, and the American public should insist on an answer.
Pakistan has publicly denied knowing that bin Laden was within its borders. But if that's true it makes Pakistan look incompetent, particularly in light of the fact that Pakistan's most powerful man, General Ashfaq Kayani, the chief of staff, was within shouting distance of bin Laden last week giving a talk at the military academy on how Pakistan had broken the back of terrorism. More from The Economist on on the logic behind why Pakistan may have been providing bin Laden safe harbor:
From 2002 to 2010, the U.S. gave $13.3 billion in military aid to Pakistan, and $6 billion for economic development. Over $3 billion has been requested for 2011. Calls for U.S. forces to pull-out of Afghanistan will only grow, which will have a destabilizing effect on Pakistan and the wider region. It's no surprise to see that Congress is already moving to cut Pakistan's billions of dollars in annual U.S. economic and military aid.
As Pakistan plays their double-sided game, the U.S. Congress and President Obama need to think seriously about how much good all this aid is really doing in the fight against terror.
The history between Pakistan, the U.S., and the region is long and complex and for those familiar with it it really shouldn't come as a surprise that Pakistan was harboring bin Laden. For further reading I highly recommend Legacy of Ashes, by Tim Weiner, and in particular Ghost Wars, by Steve Coll. You can find both books in the 'Good Books and Film' section on the right side of this blog, and here is a recent interview with Steve Coll, David Ignatius of the Washington Post, and Dexter Filkins of the New Yorker.
The compound itself was located a short distance from the Pakistani military academy (the "West Point or Sandhurst of Pakistan" as it's being characterized). Detailed maps, satellite imagery and the CIA's diagram of the compound can be viewed here.
The Lair
His five-to-six year old property, believed to have been purpose built to hide the ultimate 'High Value Target' (HVT), was three stories tall and approximately eight times larger than any other nearby dwelling. Other key details:
- 12-to-18-foot walls, topped with barbed wire
- Internal walls sectioned off different areas of the compound
- Access was restricted by two security gates
- Closed-circuit cameras positioned around the property
Yet bin Laden's "mansion", as it has been characterized, did not have a phone line or internet. The couriers, Afghans brothers named Arshad and Tariq who were also gunned down by ST6, did not report any income and had no visible source of wealth. They also burned all their own trash. Neighbors also reported that the women who were living inside the house spoke in Arabic and not the local dialect.
Bin Laden's Hideout Strategy
Bin Laden's choice to hide near Pakistani military installations and in a residential community of retired Pakistani officers strikes me as both intriguing and suspicious. Less wise, perhaps, were some of the activities noted above, like burning the trash and not having a phone or internet line.
In short, Bin Laden stopped just short of hiding in veritable plain view. Did his failure to go all the way here do him in? One thing we do know is that the U.S. was only able to locate bin Laden by trailing his courier back to the compound in August 2010, and the whole reason bin Laden had to employ the services of a courier was due to his aversion to phones and the internet.
This location at least gave bin Laden some chance as the first assassination option considered by President Obama, employing B-2 Stealth Bombers, was abandoned due in part to the likelihood of collateral damage.
Was bin Laden's thinking on where to locate influenced by his correct calculation that the U.S. was unlikely to drop a bomb or conduct a Predator drone strike on this particular location? In turn, was bin Laden expecting a tip from Pakistani intelligence should any planned U.S. Special Forces assault to be attempted?
Who Does Pakistan Think They're Fooling?
Bin Laden apparently lived in this compound for the last 5-6 years. This raises very important questions about how much Pakistan, or elements of Pakistan's military and intelligence service, knew about the whereabouts of bin Laden. The U.S. has sent billions of dollars to Pakistan over the past several years to help find and kill people like bin Laden, and the American public should insist on an answer.
Pakistan has publicly denied knowing that bin Laden was within its borders. But if that's true it makes Pakistan look incompetent, particularly in light of the fact that Pakistan's most powerful man, General Ashfaq Kayani, the chief of staff, was within shouting distance of bin Laden last week giving a talk at the military academy on how Pakistan had broken the back of terrorism. More from The Economist on on the logic behind why Pakistan may have been providing bin Laden safe harbor:
Let's be clear about Pakistan's motive: the longer bad guys like Osama bin Laden, Mullah Omar, and the presume new Al Qaeda boss, Ayman al-Zawahiri, are kept alive, then the longer the billions in U.S. dollars in development and military aid will keep flowing to Pakistan.More likely, but no more attractive for the likes of the ISI, is that at least some in power in Pakistan knew that Mr bin Laden had been forced by American drone attacks to shift from a mountain hideout to this urban shelter. On this score Mr bin Laden (and probably others, such as the Aghan Taliban leader, Mullah Omar, who was reported earlier this year to have been taken by the ISI to Karachi for medical treatment following a heart attack) was being afforded some measure of protection by Pakistani officialdom. Why? Perhaps so that he could be used, one day, somehow to promote Pakistani interests among fighting groups in Afghanistan, or perhaps so that he (bin Laden) could be used as leverage over the Americans on a “rainy day”, as one Afghan intelligence officer speculates.
Something's wrong with this picture
From 2002 to 2010, the U.S. gave $13.3 billion in military aid to Pakistan, and $6 billion for economic development. Over $3 billion has been requested for 2011. Calls for U.S. forces to pull-out of Afghanistan will only grow, which will have a destabilizing effect on Pakistan and the wider region. It's no surprise to see that Congress is already moving to cut Pakistan's billions of dollars in annual U.S. economic and military aid.
As Pakistan plays their double-sided game, the U.S. Congress and President Obama need to think seriously about how much good all this aid is really doing in the fight against terror.
The history between Pakistan, the U.S., and the region is long and complex and for those familiar with it it really shouldn't come as a surprise that Pakistan was harboring bin Laden. For further reading I highly recommend Legacy of Ashes, by Tim Weiner, and in particular Ghost Wars, by Steve Coll. You can find both books in the 'Good Books and Film' section on the right side of this blog, and here is a recent interview with Steve Coll, David Ignatius of the Washington Post, and Dexter Filkins of the New Yorker.
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